Play Updates, Monday, 05/05/2008

In Play Updates and Reviews

by James Brown

Call Updates

Aracruz Celulose - ARA - cls: 81.51 chg: +2.08 stop: 75.49

ARA is bouncing nicely as the Brazilian market continues to set new highs. We
remain positive here but more conservative traders may want to tighten their
stops (maybe somewhere in the $77.50 zone). We have two targets. Our first
target is the $84.50-85.00 range. Our second target is the $88.50-90.00 zone. As
expected the rally over $80.00 did produce a new P&F chart buy signal, which
currently points to a $94 target.

The fertilizer stocks were showing strength early in the day but the rally faded
into the afternoon. Shares of CF seemed to reverse under its 10-dma and the $140
level. We remain bullish but readers might want to wait and watch for a dip or
bounce near $130 before considering new positions. This morning's move over
$137.50 was our suggested entry point to buy calls so the play is open. More
conservative traders could wait for a rally over $140 as their entry point. We
are using a wide
(aggressive, high-risk) stop loss under Thursday's low. You may
want to use a much tighter stop loss but remember this can be a very volatile
group. Our target is the $155.00-160.00 range. FYI: CF is due to present at two
different investor/analyst conferences this week on May 6th and May 7th.

We have been cautious on CYT the last few days. Today's session was encouraging.
While the gains weren't very impressive the stock was inching higher. If you
look at an intraday chart (like a 10-minute chart) you can see how CYT just
barely edged past its short-term trendline of lower highs. We would still wait
for a rally over $60.00 or $61.00 before considering new bullish positions. We
have to label this a more aggressive play because the spreads on the options are
pretty wide.
There isn't much we as traders can do about that except try to
minimize its impact with good entry and exit strategy. We're listing two
targets. Our first target is the $64.75-65.00 range. Our second target is the
$68.00-70.00 zone.

GILD continued to inch higher but failed to make much headway due to the
lackluster market performance. We don't see any changes from our weekend
comments. We're suggesting readers buy calls now although a dip in the
$52.50-52.00 zone would work well too. Our target is the $57.50-60.00 range.
Don't forget that any time we play a biotech company it should be considered an
aggressive, higher-risk trade. There is always risk of some FDA decision or
clinical trial result surprising the
market and sending the stock gapping one
direction or the other.

HBC delivered some solid gains last week and shares hit some profit taking
today. We would look for a dip in the $86.50-86.00 zone as a new bullish entry
point. We have two targets. Our short-term target is the $89.75-90.00 range. Our
more aggressive, longer-term target is the $94.00-95.00 zone. The P&F chart is
bullish with a $113 target.

Shares of HD followed the retailers lower instead of the homebuilders higher.
The RLX retail index lost 2.3% presumably on negative comments from Sears (SHLD)
and a new record high in oil prices. We would seriously consider buying a dip or
bounce near $29.00 with a very tight stop but for the moment our "official"
entry point to buy calls is at $30.55. If triggered our target is the
$34.00-35.00 range. We do not want to hold over the May 20th earnings report.

HOV rallied higher this morning after announcing its preliminary second quarter
results. The company doesn't truly report until late May. According to HOV the
company delivered 2,494 homes in the Q2, which is a 21% decline from a year ago.
Net contracts were down 29%. Cancellations were at 29% compared to 38% in the
first quarter. The backlog was at 3,577 homes, which is a 54% drop from a year
ago. What moved the stock higher was its cash flow. HOV said it hit positive
cash flow in
the second quarter, which is a quarter earlier than expected. The
company raised its positive cash flow projections for the rest of 2008. The
stock rallied to $12.43 but failed at resistance near $12.50 yet again. Right
now our stop loss at $10.74 is just under the 50-dma but we're tempted to raise
it closer to the $11.00 level. Another bounce near $11.30 can be used as a
bullish entry point. We have two targets. Our first target is the $13.50-14.00
zone. Our second, more aggressive
target is the $14.75-15.00 zone. FYI: The P&F
chart is bullish with a $25 target. HOV still has a high amount of short
interest. The most recent data listed short interest at almost 65% of the 37.2
million-share float. That really raises the odds of a short squeeze, which would
be great for us. Don't forget that we do not want to hold over the late May
earnings report.

Steel and iron stocks were out performing the markets today. HSC was no
exception and shares rallied 1.7%. We don't see any changes from our weekend
comments. The $60.00 level should be short-term support. Our four-week target is
the $64.50-65.00 range.

IBM is still consolidating sideways to down. As shares drift lower patient
traders might get another chance to buy a dip near $120.00. We would consider
new positions anywhere in the $121.00-120.00 zone. More conservative traders
might want to cinch up their stops toward $120, which should be new support. We
have two targets. Our first target is the $124.90-125.00 range. Our second
target is the $128.00-130.00 zone.

The sharp weakness in shares of IMCL today remains a mystery. We didn't see any
news that would account for the decline and none of its major competitors seemed
to have any significant headlines. The stock found support near $46.00 and a
bounce from here would be an attractive entry point given our tight stop loss.
We have two targets. Our first target is the $54.00 level. Our second target is
the $58.00 level. Please note that any time we play a biotech company it is
considered an
aggressive, higher-risk play. You never know when an FDA decision
or some clinical trial result might come out for this company or one of its
rivals and send the stock gapping one direction or the other at which point our
stop loss might become worthless.

The small cap stocks were flat to down all day and actually out performed the
S&P 500, the DJIA and the NASDAQ composite. We would use a dip near $71.50 as a
new bullish entry point. Our four to six-week target is the $77.50-80.00 zone.
The P&F chart is bullish with an $87 target.

The transports struggled with new record high oil prices but overall the group
held up pretty well. The airlines were naturally under performers but the
transport sector as a whole was surprisingly resilient. We are not suggesting
new positions at this time. This group does look a little overbought and due for
a dip. Our eight-week target is the $98.00-100.00 zone. IYT has already
surpassed our first target in the $94.85-95.00 zone.

Lehman Brothers (LEH) raised their price target on both JOYG and BUCY. JOYG had
its target raised from $80 to $88. The stock responded with a spike above $78
this morning and a new all-time high at $79.05. While we remain bullish here
readers may want to consider taking profits right now. Please note our new stop
loss is at $72.45. Our target is the $79.50-80.00 range. We are going to add a
secondary target in the $84.00-85.00 zone. However, we will plan to exit ahead
of the late May
earnings report. The P&F chart is already bullish with an $88
target.

Fertilizer stocks were higher as a group this morning. MOS actually gapped open
higher at $126.75 before pulling back. Our suggested entry point to buy calls
was at $126.50 so we've adjusted it for the opening price today. While the stock
struggled to maintain its gains today we remain bullish. Readers can choose to
open positions here or on a dip near $121-120. If you're patient a dip would be
more attractive. Our first target is the $138.00-140.00 range. We are playing
with a very
wide, aggressive stop loss at $115.49, just under Thursday's low.
You may want to use a tighter stop closer to $120.

MT also gapped open higher as shares adjusted to strength in Europe. MT opened
at $89.73 and rallied throughout the session. Our suggested entry point to buy
calls was $90.25 so the play is open. The company is due to report earnings in
the next week or two so this should be a short-term play. We don't want to hold
over the announcement. Our target is the $99.00-100.00 zone. The P&F chart is
very bullish with a $116 target. FYI: MT garnered some headlines today as the
media reported
that the company was trying to buy a stake in Angang Steel,
China's second-largest steel maker. MT wants to buy a 25% stake but Angang is
only offering a 2% stake at this time. Right now estimates place a 25% stake
around $5 billion.

NUE rallied more than 3.4% as the steel stocks displayed relative strength
today. As a group the steel sector is hitting new highs. This looks like another
bullish entry point to buy calls in NUE. We are raising our stop loss to $71.59
just under last week's low. Our initial target is the $79.50-80.00 range. Our
second, more aggressive target is the $84.00-85.00 zone. The Point & Figure
chart is bullish with a $93 target. FYI: We had a reader write in about the May
$80 calls. Due
to NUE's sideways consolidation over the last couple of weeks the
May $80s are a risky bet. You may want to roll your position forward into June
or July calls.

Our new play on PKX is now open. The stock broke out over resistance at its
long-term trendline of lower highs and over resistance near $125.00. Our
suggested trigger to buy calls was at $125.55. Our target is the $139.00-140.00
range. We should expect to see some overhead resistance at the 100-dma and
exponential 200-dma near $130-133. NOTE: We would consider this a slightly more
aggressive play for two reasons. First, PKX is prone to gap openings as the U.S.
traded shares adjust
to trading overseas the night before. Second, the spreads
on the options are pretty wide and that immediately puts us, as option traders,
at a disadvantage.

We don't see any changes from our previous comments on TXT. The stock traded
sideways on Monday but still looks poised to breakout higher. We are suggesting
new positions right here but more conservative traders could wait for a new
relative high over $62.50. Our short-term target is the $64.85-65.00 zone. Our
secondary, more aggressive target is the $68.00-70.00 range. The Point & Figure
chart is bullish with an $83 target. FYI: TXT is due to present at an investor
conference
on May 8th.

Put Updates

None

Strangle Updates

None

Dropped Calls

None

Dropped Puts

United States Oil - USO - cls: 96.74 chg: +3.34 stop: 94.65

We have been stopped out of USO. Before the opening bell news that violence had
flared up again in Nigeria and that rebels were targeting oil platforms and
pipelines sent crude oil higher. The USO actually gapped open higher at $95.23,
which is above our stop loss at $94.65. As the day wore on crude oil continued
to climb and hit a new high above $120.00 a barrel. The USO followed with a new
high of its own at $96.92. We would have been stopped out at the opening bell.